India’s budget likely to spur spending to support economic growth

Finance minister Nirmala Sitharaman is
expected to announce more spending on roads, railways, besides higher subsidies
for affordable housing amid growing public criticism over inadequate relief
following the economic disruption after the outbreak of pandemic in 2020.

A government report on Tuesday warned that growing risks of global inflation
led by rising crude oil prices could hit the economy, while projecting growth
of 8% to 8.5% next fiscal year compared to 9.2% in current fiscal year and 6.6%
contraction in the previous year. read more

The budget comes days before the start of
elections in five states, including the most populous, Uttar Pradesh, which
could spur Sitharaman to promise higher rural spending and subsidies on food
and fertiliser, economists and officials said.

“The fiscal position appears much
healthier than expected ahead of the (budget) announcement,” said Shilan
Shah, economist at Capital Economics, Singapore in a note.

The strong revival in revenue receipts, which
rose 67% during April-November period from a year earlier implied that the
government has a “fiscal space to provide additional support if
necessary”, Sanjeev Sanyal, principal economic adviser at the finance
ministry told reporters on Monday.

Policymakers are worried that private
consumption, which makes up nearly 55% of GDP, is still below pre-pandemic
levels amid rising levels of household debt, while retail prices have increased
by nearly 10% since the coronavirus outbreak began in early 2020.

But the government looks unlikely to offer any
major relief measures to struggling consumers, focusing instead on beefing up
spending on transport and healthcare networks, which analysts estimate could
rise between 12% and 25% in the next fiscal year.

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“We will focus on reviving the economy
through higher investments, while individual and corporate taxes will be kept
steady,” one government official, who sought anonymity, told Reuters,
adding that reviving growth would be a priority.

To attract investments that create jobs and
spur growth, Sitharaman could also boost incentives tied to production in more
industries, the official said.

Food processing and exports are two areas that
could see more production-linked incentives, two senior government officials
said, adding no major budget changes were likely on individual and corporate
taxes, in view of rising government debt and subdued private investments.

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